Western and Eastern Easter/Pascha calendars are very far off this year (Eastern Lent begins at sunset on March 10) … I wish the best for everyone who begins their Lenten fast tomorrow, may your journey be fruitful.

11 comments

When a thing which isn’t happening is discussed over whether that’s a problem.

Except MR is saying it’s happening, corps are hoarding cash. Cowen is pointing out that the financial markets take the cash balances of corporations and turns it into loans to other sectors that wants to spend. That way Apple can keep billions as ‘cash’ but that same cash can, in theory, get spent by individuals buying homes, small businesses buying capital equipment, people buying cars etc.

He is saying the problem is not that Apple doesn’t want to spend money on things, it’s that the loanable funds market doesn’t want to spend money either. The question is why? The stagnation hypothesis is simply that there’s nothing worth spending money on.

Boonton,
I’m not seeing why you think anything unusual is going on. Profits go to cash and improvements (which are kind the “things worth spending money on). If you don’t think that there are things to spend money on, then you would expect the profit/cash ratio to change. So corporations are finding things to spend money on, you just are pretending they aren’t.

If the cash/profit ratio is not changed, then there is nothing unusual happening. Sorry, you’ve just given evidence that says there is not a problem.

What’s happened is that the income inequality has created a “crowding out” of demand — all the money gains made in the last 15 to 20 years has gone to corporations and rich people, who don’t need another house, a fourth car, a month’s supply of food, a vacation at the lake, tuition for their kid, nor much of anything else. So the money gets banked, and not spent.

It’s the old “too much savings” problem that economists wrote about in the early 20th century, coupled to the old law of supply and demand, coupled with damaging tax policies that concentrate wealth in the hands of a few.

Middle class and poor people would love to have enough to eat, or another night out in a month. They’d love to get a new car. They’d love to add on to the house, or redo the kitchen. But they’re out of work/their earnings have gone down/they are underemployed.

Why won’t businesses use the $2 trillion in cash they are sitting on? No demand.

Why no demand? Because the people who would be consumers, lack the money.

There’s a huge problem. Last time we had a problem like this, it was resolved with the collapse of more than a third of the banks in the nation, idling of 60% of our productive capacity, dead stocks for 15 years, and we only got out of it because World War II gave us full employment.

Let’s not pray for a war.

Profits are through the roof in many industries. The stock market is cruising near 14,000 on the Dow-Jones index. Banks are flush with money. But GDP declined, unemployment is measured at near 8% while everyone believes it’s really higher.

No problem? Mark, you must have a job, and no unemployed brothers in law. You may be one of about 5,000 people in the nation so lucky.

You have homework … read Fault Lines by Rajan. That’s a non-ideological explanation for the cause of the crash.

I’m unclear on how you figure that excess CoH in a time when profits are up is unusual. If CoH tracks with profits this isn’t hoarding.

So … do you think businesses have lots of cash sitting in mattresses? Or what?

There’s a huge problem. Last time we had a problem like this, it was resolved with the collapse of more than a third of the banks in the nation, idling of 60% of our productive capacity, dead stocks for 15 years, and we only got out of it because World War II gave us full employment.

Nice story, err, fable.

You may be one of about 5,000 people in the nation so lucky.

And you must be innumerate. Seriously. You seriously think that only 5k people in this country have employed male in-laws … out of a country of 400+ million? Really?

And yes, right now we are busier than ever. I’m in the automation sector. Automating industry is booming right now. We’re swamped … the last show had 5x more leads than ever before. Industry is investing those profits. And before you start saying automation kills employment, let me forestall you. Automation is a human labor multiplier. If all you want is employment … we could go back to subsistence farming, that world had 100% employment. Except lacking automation meant very very very very low standards of living. If you want to compete with a new higher minimum productivity laws … then you have to make our labor more productive to compete with Chinese labor that is feeling flush on $4 a day.

I should add my brother (not brother in law) is still employed but things are dicier in general in the fine arts entertainment fields (he’s first Oboe of the Jacksonville Symphony). Orchestras all around are doing not so well. Odd that … because charitable giving from those rich you think are rolling in money … aren’t. Why is that? Hmm. Perhaps that talk about the salaries of the rich dropping the most in the recent recession has more merit than you pretend with all your talk about income disparity and the recent problems it’s causing.

Good grief, this Ed Darrow fellow is just spouting Marxism 101, isn’t he? Time for a revolution, eh, comrade? Listening to you, you’d think we lived in Guatemala or something. You imagine this country to be filled with desperately poor people, which just isn’t true. You’re worse than Boonton, and that’s saying something

Therefore if you multiply human labor you multiply output. If output is multiplied then has demand been multiplied? If not then even though the ability to enjoy a higher living standard exists, we will not do so because the demand for the products is not there.

A non-barter monetary economy allows demand to leak out of the ‘real sector’ and into paper assets, which is the core insight of Keynesian economics.

Interestingly this tends to cut against both ideological lines. Inequality in itself is unlikely to cause a demandshortfall.

Clearly that ratio has spiked dramatically which answers the question of why has corpoarte cash dramatically icnreased? Because there’s more cash and it has to go somewhere….technically it’s sitting in banks as ‘excess reserves’ but that really means with corporations since few corporations literally hold billions in actual cash.

So the next question is why has the amount of corporate cash gone up but Mark’s favorite ratio of cash to profits remained more or less steady? Because demand has not gone up.

Imagine if transactions increased as much as cash increased making the first graph flat instead of spiking. In that case profits would not go up. Sure corporations may make more sales, but they would also make more payments. If real output goes up this would be called a boom. If real output remained constant it would be called inflation. But if you have more cash but the same amount of transactions then the cash is piling up somewhere. Neither Crowen nor Krugman are wrong int his sense, just approaching the same thing from diffrent POV.